The Virus of Deglobalization

The Covid-19 pandemic will transform the economic map of the world, writes Guy Sorman. "We will see a reindustrialization of the West, a retreat by China, and a certain degree of economic deglobalization."
© Kena Betancur/Getty Images

History may not repeat itself, but it sometimes stutters. Exactly nine years ago, a tsunami in Japan destroyed Fukushima’s nuclear plant and disabled the core of Japanese industry. Two weeks later, manufacturing was interrupted around the world due to the lack of spare parts provided only by these factories. It was becoming clear, in real time, how much the system of interdependence and of lack of back-up supplies that defines global production is both rational and fragile. Since the Japanese were able to restore their energy production and trade flows within three months, the lesson of Fukushima was soon forgotten.

The coronavirus, which began last December in a market in Wuhan, China’s industrial center, is repeating this Japanese precedent, with the addition of a pandemic. It is important to distinguish the two distinct phenomena. The illness is immediately the most worrisome; no one really knows its extent or its seriousness. If we take the so-called “Spanish flu” of 1918 – which seems to have begun on a farm in the U.S. Midwest, and whose first contagious victim was an army recruit heading for France – as a point of reference, the present virus spreads more rapidly because it travels by plane rather than by boat. But even a century ago, the contamination spread to all nations. And it will again in 2020.

The Wuhan virus seems less serious. Few die of it, while the Spanish flu sometimes resulted in death within a day, generally among men between twenty and forty years of age. The death toll was more than fifty million between 1918 and 1919, including a great number of French and American soldiers. Thankfully, we are currently very far from that. It is notable that, as in 1918, religious gatherings are particularly dangerous. In South Korea, Alsace, and New York City, two evangelical churches and a synagogue have been the source of widespread infection among the faithful. In 1918, Catholic masses and processions in Spain resulted in significant devastation  –  better to worship at home, as recommended by the French Church. It may be the case that, in the absence of a vaccine and effective treatment, isolation is more effective today than it was a century ago, as we wait for the warm weather that should numb the virus. It is likely that this strain, like flu and pneumonia, will reawaken next winter, but by then a vaccine will be available.

Beyond the public health crisis unfolding before our eyes, the ultimate effects of which are still unclear, the economic consequences are already apparent and predictable. Industry figures worldwide, pharmaceutical laboratories in particular, will modify their supply chains. Total dependence on a single, distant, risky supplier, will be diluted by the repatriation of activities to the United States and Europe. We will also see a distribution of activities between China and other low-cost countries that are more transparent, such as Vietnam, Indonesia, and Ethiopia. This will take a few months or a few years, but within around five years, the economic map of the world will be transformed. In the end, we should see a reindustrialization of the West, a retreat by China, and a certain degree of economic deglobalization. There is no chance of strict economic nationalism, which has historically never existed, but we can expect to hear this kind of ideological language.

Another major economic impact will be led by a modification of behaviors. We will ask ourselves in the West, as well as in Asia, whether it is really necessary to travel to distant places, and in groups, to high-risk countries. Business travelers will discover how many trips can be replaced by video calls and how little value there is in conferences. Tourists will discover their own countries or those next door, and they will do their shopping on the internet. Because of the fear of the pandemic, we are already seeing online purchases and home deliveries take off everywhere. Delivery workers have a fine future ahead. We should expect the pandemic to produce the kind of disruption that usually comes from technological innovations – what economists call creative destruction, a vast redistribution of activities with winners and losers.

There is one weakness in my analysis: It is based on rational behaviors, whereas epidemics provoke panics. And we are indeed seeing, from Paris to New York, attacks against Chinese people reminiscent of past times when Jews accused of spreading the plague were killed. If the epidemic were to drag on, it is possible that a few anti-immigration and anti-innovation demagogues might exploit it so as to destroy the benefits of globalization. Luckily, spring is here and may limit the pandemic and  the panic.  But the effects of a relative deglobalization seem inevitable.

Editorial published in the April 2020 issue of France-Amérique.